REG - Schroder Real Estate - NAV update for the quarter to 31 December 2024

Schroder Real Estate Investment TrustAnnouncement

17/02/2025 07:00

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RNS Number : 2565X  Schroder Real Estate Inv Trst Ld  17 February 2025

For release 17 February 2025

 

Schroder Real Estate Investment Trust Limited

NAV UPDATE FOR THE QUARTER TO 31 DECEMBER 2024

4.0% NAV TOTAL RETURN SUPPORTED BY INDUSTRIAL WEIGHTING AND ACTIVE MANAGEMENT

 

Schroder Real Estate Investment Trust Limited ('SREIT' or the 'Company'), the
actively managed REIT focused on improving the sustainability performance of
buildings to generate higher income and capital growth, announces its 31
December 2024 net asset value ('NAV'), an asset management update, and further
progress selling smaller non-core assets on completion of business plans.

 

Financial highlights

·    NAV total return for the quarter of 4.0% (30 September 2024: 2.0%),
reflecting the Company's strongest quarterly performance since June 2022

·    NAV increase of 2.5% to £297.8 million or 60.9 pence per share
('pps')

·    Annualised dividend yield of 6.9% on 14 February closing share price
of 50.6p

·    Quarterly EPRA earnings increased 6.7% to £4.5 million, or 1.0 pps

 

Balance sheet highlights

·    Sector-leading debt terms with a weighted average maturity of 8.8
years and interest cost of 3.5% on drawn debt

·    Incremental positive fair value benefit of the fixed-rate loan of
£18.4 million, which is not reflected in the Company's NAV

·    Net loan to value 36.6% (30 September 2024: 37.3%)

 

Operational highlights

·    Quarterly portfolio capital growth of 1.5% (MSCI Benchmark: 0.8%)

·    Quarterly portfolio total return of 2.9% (MSCI Benchmark: 2.0%)

·    Strong leasing momentum maintained, with 12 deals completed across
223,804 sq ft:

o  Two new lettings of vacant units adding £147,000 of rent, 1% ahead of 30
September 2024 independent valuation estimated rental value ('ERV')

o  Five lease renewals generating total rent of £328,000, which is £94,000
or 40% ahead of the previous passing level and 3% ahead of 30 September 2024
ERV

o  Five rent reviews with a total rent of £1,194,000 which is £287,000 or
32% ahead of the previous passing level

·    Progressing sustainability improvement and decarbonisation strategies
with significant near-term leasing pipeline, notably at the recently completed
industrial refurbishments in Manchester and Swindon, and office refurbishments
at Northampton and York, which are expected to further drive income and
earnings growth

 

Dividend

·    Quarterly dividend paid of £4.3 million, or 0.879 pps (30 September
2024: 0.853 pps)

·    Quarterly dividend 104% covered by EPRA earnings (30 September 2024:
100%)

·   The Company will announce an interim dividend for the period 1 October
2024 to 31 December 2024 on 25 February.

 

Alastair Hughes, Chair of the Board, commented: "The portfolio has delivered
three consecutive quarters of capital value appreciation, driven by rental
growth and modest yield compression. Our differentiated and active strategy is
enabling us to deliver real momentum driving rents up to 40% higher than
previous passing and supporting consistent earnings growth."

 

Nick Montgomery, Fund Manager, added: "The 2.5% quarterly net asset value
increase follows the 0.5% increase in the prior quarter, and demonstrates the
resilience of our underlying portfolio, which is high yielding and weighted
towards higher growth sectors. We see no slowdown in our ability to capture
the high portfolio reversion, and significant work is ongoing in implementing
our Brown to Green strategy, with a full update to be provided with the annual
results later this year."

 

NAV

A breakdown of the quarterly movement in the NAV is set out below:

 

                                                                                £m     pps    Comments
 NAV as at 30 September 2024                                                    290.7  59.4   Calculation based on 489,110,576 shares
 Unrealised increase in the valuations of the direct real estate portfolio and  9.6    2.0    Portfolio capital growth of 1.5% (MSCI Benchmark: 0.8%)
 Joint Ventures
 Capital expenditure (direct portfolio and share of Joint Ventures)             (3.0)  (0.6)  Relating to various projects across the portfolio.
 EPRA earnings                                                                  4.5    1.0    Resulting in dividend cover of 104%
 Dividend paid                                                                  (4.3)  (0.9)  Dividend for the quarter ended 30 September 2024 paid on 20 December 2024 of
                                                                                              0.879 pps
 Gain on disposal of asset                                                      0.2    0.0    Howard House, an office in Bedford, was sold in December 2024 for a price of
                                                                                              £1.475m, compared to the book value of £1.20m, with £0.03m of sale costs
 Unrealised fair value movement on the interest rate collar                     0.2    0.0    Relating to the RBSI revolving credit facility
 Others                                                                         (0.1)  0.0    All other items including lease incentives and rounding
 NAV as at 31 December 2024                                                     297.8  60.9   Calculation based on 489,110,576 shares

 

Property portfolio

As at 31 December 2024, the underlying portfolio comprised 38 properties
valued at £473.9 million. It generated annual rent of £28.5 million,
reflecting a net initial yield of 5.6% (MSCI Benchmark: 5.1%). Note that the
University of Law, the tenant at Store Street in Bloomsbury, is in a 10-month
rent free period ending on 16 October 2025. Adding back the Company's share of
its annual rent, being £2,359,885, would result in a net initial yield of
6.1%. The portfolio's ERV is £39.6 million, reflecting a reversionary yield
of 8.4% (MSCI Benchmark: 6.1%).

 

The portfolio void rate was 11.6% calculated as a percentage of ERV, with 0.2%
of space completed since the period end and a further 3.6% of space currently
under offer and in advanced legal negotiations. The weighted average unexpired
lease term, assuming all tenants vacate at the earliest opportunity, is 5.3
years. A further update on portfolio activity will accompany the dividend
announcement.

 

The tables below summarise portfolio information as at 31 December 2024:

 

Sector weighting

                               Sector as a % of total value
                               SREIT            MSCI Benchmark
 Industrial                    50.6             32.7
 Office                        23.6             22.2
 Retail warehouse              12.4             9.5
 Retail                        7.7              9.5
 Retail ancillary to main use  5.0              -
 Retail single use             2.7              -
 Other                         5.7              20.3
 Shopping centres              -                2.2
 Unattributable                -                3.7

 

Region weighting

                                      Region as a % of total value
                                      SREIT            MSCI Benchmark
 Central London                       8.1              17.5
 South East excluding Central London  16.8             34.3
 Rest of South                        11.0             6.7
 Midlands and Wales                   21.6             23.4
 North                                40.1             13.9
 Scotland                             2.4              4.1
 Northern Ireland                     -                0.2

 

Balance sheet and debt

The weighted average interest rate for total debt drawn at the quarter end was
3.5%, with an average maturity of 8.8 years, with 88% either fixed or hedged
against movements in interest rates. The Company has significant headroom on
all covenants. A summary of the key terms as at 31 December 2024 is in the
table below:

 

 Lender       Drawn loan (£m)   Maturity                    Total interest rate
 Canada Life  129.6             50%: 15/10/32               2.5%                 Fixed rate loan

                                50%: 15/10/39
 RBSI         51.5              06/06/27                    6.1%                 £75 million revolving credit facility ('RCF'), of which £51.5 million is
                                                                                 drawn. Loan margin is 1.65% over SONIA. £30.5 million benefits from an
                                                                                 interest rate collar to maturity, with a cap at 4.25% and a floor at 3.25%.
                                                                                 The balance of the loan is floating. The RCF is a 'Green Loan', with criteria
                                                                                 linked to reduced energy consumption, future improvements in the GRESB rating
                                                                                 and certification linked to building improvements.
 Total        181.1             Weighted average 8.8 years  3.5%

 

As at 31 December 2024, the Company had cash, including cash held in joint
ventures, of £7.6 million and a net loan to value ratio of 36.6%, slightly
above the long-term strategic target range of 25% to 35%. The Company is
taking steps to reduce the net loan to value ratio back in line with the
target range, including a post quarter end disposal, and others in progress or
planned.

 

Asset management

The Company continues to deliver on its asset management programme, with key
activity since 26 November 2024 including:

 

Industrial

·    At Millshaw Park Industrial Estate, Leeds, a rent review has
completed on two of the three units occupied by Express Bi Folding Doors
Limited.

o  The review for Unit 23 was settled at £260,256 per annum, an increase of
38% on the previous passing rent.

o  The review for Unit 24 was settled at £358,394 per annum, an increase of
41% on the previous passing rent.

·    At Union Park Industrial Estate, Norwich, a lease variation has
completed with Quentor Limited to remove its June 2025 break in return for 1.5
months of rent free. As part of the deal, the tenant has agreed to settle the
10 June 2025 rent review at £291,813 per annum, an increase of 45% on the
current passing rent and 46% ahead of the September 2024 ERV.

Retail

·    At Headingley Central an agreement for lease with a 15-year straight
term has exchanged on Unit 24 with McDonalds at a rent of £75,000 per annum,
subject to planning. On a per sq ft basis this is an increase of 28% compared
to the previous passing rent.

·    Two agreements for lease have exchanged with Iduna EVCI Asset Co 1
Limited ('Be.EV'), with both being 20-year leases at a combined rent of
£146,400 per annum. Be.EV, part of the Octopus Energy Generation Group, will
rent 11 electric vehicle charge points at each of Headingley Central and St
John's Retail Park, Bedford. Be.EV will pay all planning costs and the cost of
installation of the substation, cabling, charging points and other
infrastructure.

·    At Imperial House, Sheffield, a rent review has completed with the
tenant Welbeck CP (Pinstone) Limited, at £232,250 per annum, an increase of
5% on the previous passing rent.

·    As previously reported, at Churchill Way West retail park in
Salisbury we have exchanged an agreement for lease with Lidl Great Britain
Limited ('Lidl') to occupy unit 1 and part of unit 2, totalling 22,206 sq ft,
on a new 25-year lease at £440,000 per annum or £19.81 per sq ft. On a per
sq ft basis is an increase of 67% on the previous passing level and 32% ahead
of September 2024 ERV. This is subject to planning which is progressing
positively.

 

Disposal

Contracts have been exchanged to sell 15/16 King Street in Truro, a Grade II
listed freehold asset comprising two ground floor retail units for £1.25
million. The price is 25% ahead of the 30 September 2024 independent valuation
of £1.0 million. This follows the lettings of the ground floor retail units,
with the price reflecting a net initial yield of 8.0%.

 

As noted in the interim results, further disposals are under consideration.

 

-ENDS-

 

For further information:

 Schroder Real Estate Investment Management Limited:

 Nick Montgomery / Bradley Biggins / Matthew Riley    020 7658 6000
 FTI Consulting:

 Dido Laurimore / Richard Gotla / Ollie Parsons       020 3727 1000

 

 

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